Annuities and QROPS

Recent plans from the Government have suggested that a change may be looming for UK pensions and annuities.

Under the current system all UK pension holders are obliged to purchase an annuity, however many expats opt to bypass this by taking out a QROPS. So how could the changes to annuities affect QROPS and pensions in general?

UK pensions have been seen as restrictive for many years now, however there are options such as a QROPS that give you much more freedom. QROPS stands for qualifying recognised overseas pension schemes; it is essentially a transfer system that allows expatriates and people who are imminently leaving the United Kingdom to move their pensions overseas. By doing so you can shed the obligation of buying an annuity and leave behind various forms of taxation and restrictions.

A QROPS transfer has the ability to avoid an 82 percent tax charge upon the death of the pension holder, should they intend for the pension fund to be passed on. This is one of the aspects that could be changed with the forthcoming overhaul, as mutterings from HMRC suggest that this ‘recovery charge’ could drop down to 55 percent.

Despite this reduction, the charge is still over half the worth of the fund, so the QROPS (which will have no charge) is still the more attractive option. Figures suggest that one in ten of all people born in the UK eventually go on to live abroad, and while some people who have spent years building up a pension fund have no qualm with leaving it in the UK, many more people are seeking an alternative option, especially those individuals who have an eye for wealth preservation.

For an individual who is no longer residing in the UK, a QROPS is always the better option, and the annuity factor is just one of several reasons. The world of overseas pensions is now becoming a very established market and what was once an area that people were wary of is now growing stronger. With many providers and advisers now operating within the market, competition means that prices are fair and industry standards are high. You should discuss alternative retirement options and QROPS with an IFA today.